Living in each others houses

Ju&Mel

We are currently renting, looking to buy but nowhere appropriate has come up, but we have been given notice

There is a house we have the opportunity to buy, itis not right or our family, but my mum and dad feel it would be perfect for them
They live in a large 4 bed and finding it a lot to maintain

We would both have mortgages (approx 70%) on the properties

What are the legalities of them living in 'our' house, and us in theirs?

Would we have to get BTL mortgages and 'rent' off each other?
Or just permission from the mortgage company?

kidmugsy

The houses will be exposed to Capital Gains Tax if they are not owner-occupied. Mutual rents will be exposed to income tax. Permissions would be necessary.

On the other hand the threat of CGT on your parents' house would be remote for some time since it has been owner-occupied. If you were to live briefly in yours before swapping, you could get the same advantage I assume. The income tax would presumably be avoided if you simply refrained from paying each other rent.

On the other other hand, why do it that way? Why not have the older generation buy the smaller house and the younger buy the bigger from them, with temporary financial assistance from them?

G_M

Even if no actual cash changed hands there would be rent, therefore a tenancy.

You live in their house. In return for them providing this accomodation, instead of paying 'rent' you give them.... somewhere to live (your house). This constitutes 'consideration' (a legal term which is a requirement for a contract).

And, of course, vice verse!.

Capital Gains tax is also relevant, as you would not be resident in your house.

This post gives some info on the responsibilities when letting.

And what if one of you defaults on mortgage? Repossession? I know this is far-fetched/unlikely, but would either of you evict the other if required.....?

Ju&Mel

My parents have lived in theirs for 20 yrs?
We could live for a short while in 'our' house, do you know how long we would need to do that?
We were thinking of living there first and upgrading the kitchen/bathroom for them.

We could buy theirs, but their outstanding mortgage is roughly the same as the house we would be buying. Their mortgage is portable but not at 100% LTV
Their mortgage has 10 year left to run, but it is fixed until 2017 with quite a large penalty for early repayment

If the worst should happen, we wouldn't 'evict' the other, if the smaller house went, we would all live in the larger. If the larger then we would rent elsewhere.

franklee

Ju&Mel wrote: »

We could buy theirs, but their outstanding mortgage is roughly the same as the house we would be buying. Their mortgage is portable but not at 100% LTV
Their mortgage has 10 year left to run, but it is fixed until 2017 with quite a large penalty for early repayment

I think the problem is you can't afford the bigger house and are wanting your parents to gift you the shortfall? If not then surely they would have a deposit equivalent to the equity they have in their property coming from money you pay them. Can they port their mortgage if it was then a bit smaller?

Ju&Mel

franklee wrote: »

I think the problem is you can't afford the bigger house and are wanting your parents to gift you the shortfall? If not then surely they would have a deposit equivalent to the equity they have in their property coming from money you pay them. Can they port their mortgage if it was then a bit smaller?

No, due to a 2nd charge

Still looking at this and unsure of our best options

tim123456789

Ju&Mel wrote: »

No, due to a 2nd charge

Still looking at this and unsure of our best options

You just need to buy a percentage of your parents house (presumably on a mortgage) and then they use the money that you have paid them to buy the other house for cash.

As you say they remain part owner of their old house via a charge on the property.

It will take a bit of arranging legally, but it's not impossible

The only downside is that CGT will be liable on your parent's share of the "big" house when it is eventually sold (but you can avoid that by buying it off them in small chunks as you can afford to do so)